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Deciding on the term of your loan

Posted on Sep 16, 2011 by Thalia Green
Sep 16

Next to the interest rate, the term of your car loan is one of the key factors in determining how much your monthly payments will be. You might be wondering whether to choose a short term, a long term, or somewhere in between. There are both positive and negative aspects to each option. Here's a more in-depth look at short term versus long term loans.

Short term car loans.
Short term car loans are generally classified as 12 to 36 months. This option is ideal for those who want to pay off the loan as quickly as possible, a definite plus if you have the means to do so. Understandably, the minimum payments for a short term loan will be higher, but the good news is a greater percentage of your payment will towards the amount borrowed, also known as the principal. To make short term loans more competitive, some lenders will opt to charge higher interest rates for short term loans.

Long term car loans.
Long term loans could be anywhere from 60 to 72 months. If you have many expenses that you working on paying off right now, a long term car loan can help make car ownership more affordable. Payments will be lower, and generally your interest rate on a long term car loan will be lower, too. The disadvantage is, long term loans can end up be significantly more expensive in the long run. A larger percentage of each of your monthly payments will go towards paying the interest. For the first year or so, you may even find that the majority of your payment is for the interest, with very little going toward the principal on the loan.

A middle ground.
One option that some people choose is to go with a long term loan but to pay extra each month. This ensures that more money goes toward the principal on the loan. If you choose this option, there are a couple of things to consider. One is your own personal discipline. You'll need to know yourself well enough to know whether you're self-disciplined enough to use any remaining money each month toward paying off the loan faster. You'll also want to find out if your lender has any penalty for paying off the loan early. If the penalty is substantial, this might not be the option for you.

In the end, there is no one best length of term. You need to decide which option will work best for you, and go with that.

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What to Expect at a Buy Here Pay Here Lot

Posted on Sep 15, 2011 by Thalia Green
Sep 15

If you have very bad credit, buy here-pay here lots might be one of your only options. Unlike traditional lots, buy here-pay here lots will start with looking at your credit history and income, and then tell you which options you can afford. You'll only be presented with the options that the finance manager at the lot has determined will work within your budget. The cars at a buy here-pay here lot tend to be older, because they offer more profit to the dealer and are also more affordable car loans to buyers with bad credit. Rather than making payments once a month, payments are made once a week or every other week. If you think you might need to purchase your next car from a buy here-pay here lot, here are some additional details you should be aware of.

Chose your buy here-pay here lot based on its location.
Some buy here-pay here lots will permit you to set up payments via automatic withdrawal. Others require payment to be made in person. If the lot you choose falls into the latter category, you'll want to consider the location of the lot in relation to your home or work. The last thing you want to do is burn a lot of gas every week driving back and forth to the lot to make payments.

What to bring with you.
It's a good idea to contact the buy here-pay here lot in advance to see what documentation they require from buyers. In general however you'll need to bring the following with you: a driver's license, proof of insurance, proof of income, and proof of residence. It can also be a good idea to bring references with you. Work-related references or references from past lenders are ideal.

Know the late payment policy.
Policies on missed or late payments very greatly among buy here-pay lots. Some lots permit a grace period, while others will repossess the car within a day or two of the payment being late. Other lots are more creative in their policies. One lot has timers installed in all of its cars. Each time a payment is made, the timer is reset. If a payment is missed and the timer hits zero, the engine will not start. The reason that the late payment policy is so strict for most buy here-pay here lots is because their customers generally tend to be folks with bad credit, who have not shown that they are able to be responsible with a loan.

As you can see, there's a lot to be aware of if you opt to acquire car loans from a buy here-pay here lot. But if you go into the process knowing what to expect, you may find that it's a good way to help rebuild your credit.

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Can It Be Done? Getting a Lower Interest Rate On Your Car

Posted on Sep 15, 2011 by Thalia Green
Sep 15

Refinancing is a hot term that is being thrown around a lot these days. Many people are looking for ways to save money, and refinancing is one of the best methods to quickly save thousands of dollars on your loan. But refinancing might not be as easy as you think. Here are some things to think about if you are wanting to refinance your car loan.

1) You can't be upside-down and expect to refinance.
If you owe more on the car than what it is worth, this is what is known as being upside-down on a car loan. There are a couple of common ways that this can happen. If you purchased a new car and didn't make a larger down payment, most certainly at some point in the loan you will be upside-down. Most cars take their largest depreciation hit in the first three years. Therefore it's highly likely that if you financing the majority of the car price, the depreciation will outpace your payments on the loan. If this is your situation, you will not be able to refinance your car loan until you owe less than its value.

2) Extend the length of the loan.
Refinancing may not be an option if you are upside down, but what can you do if you still need to lower your payments? One option is to increase the length of the loan. This will allow you to spread out the remaining balance for a longer period of time, which will make your payments smaller. It's also win-win for the bank, because they can collect interest on the loan for a longer period of time.

3) Refinancing could be dependent on your credit status.
Lenders are less likely to approve refinancing if your credit is bad. They view customers with bad credit as risky, because they have a history of being irresponsible. Until your FICO score improves, you may find it is extremely difficult to refinance. This is true even if you are not upside-down on the loan. If this is the case you may have to ride out your current loan terms for awhile until you have a history of making timely payments.

Refinancing makes sense almost 100% of the time, if you are able to do so. If you owe less than the actual value of the car, and your credit is good, you would be foolish not to refiance. The cost and time it takes to do so is minimal, yet it could save you thousands of dollars.


Interest Rates

The Truth About Interest Free Car Loans

Posted on Sep 14, 2011 by Thalia Green
Sep 14

Agreeing to an interest free car loan probably seems like a no-brainer. Interest is the fee charged for borrowing money from a lender, so logically having a smaller fee is better, right? Not necessarily. Here are some things to consider about interest free car loans.

1) Interest free car car loans are usually on new cars only.
In most cases, you will only be able to get an interest free car loan on new cars. This is because the financing for new cars can come directly from the manufacturer. The manufacturer has more flexibility than other lenders to offer competitive loans, and they are highly motivated to do so. Their goal is to entice people to purchase new cars rather than used cars. In a tough economy zero interest loans become more common.

2) If you agree to zero interest, expect that you will pay a higher price.
Because zero interest car loans also have zero profit potential, the dealer must be able to make a profit elsewhere, and usually this will be in the price of the car. Not only can you expect to pay at or near MSRP, but the dealer will also hard-sell you on many extras that will put more money back into their pocket. Although the loan may be interest free, the profit from selling add-ons such as extended warranties can make the car loan highly profitable.

3) Zero interest might not be permanent.
Sure it's zero interest....for the first twelve to twenty four months. After that, some dealers will increase the interest rate for the remainder of the loan. If you agree to a zero-interest loan, be sure that you are aware of the terms, and whether or not you can expect the interest rate to go up after a time.

Considering the catches of zero interest loans, it might make more sense to go with a more traditional car loan. A better option might be to negotiate a good price on the car with a longer loan term. Then pay off the loan faster, making more than the minimum payment each month. While you will still pay a little bit of interest, you could potentially get a better deal on the overall price of the car. Buying used is another option to consider. If you choose a used car, go for one that is three to five years old. This is old enough that it will have already taken its biggest depreciation hit. Do a little research and see which option would be best for you.

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Interest Rates

Beyond the FICO: Getting a Car Loan with Poor Credit

Posted on Sep 14, 2011 by Thalia Green
Sep 14

If you have poor credit, getting a car loan might seem like a highly intimidating task. Many lenders will not even talk to buyers with poor credit, and it can be disheartening to be turned down by multiple lenders. But having poor credit does not mean that it is impossible to get a loan. Here are some things to consider if you are thinking about getting a car loan with poor credit.

Make a bigger down payment.
Even if you have poor credit, you might be able to sway a lender in your favor if you are willing to make a large down payment of more than 20%. A larger down payment does two things. First, it shows the lender that you are serious about buying the car and willing to meet them halfway. Secondly, it reduces the risk element for the lender. Lenders will turn buyers with bad credit away because they believe there is a high likelihood that the buyer will default on the loan. If you make a high down payment, then even if you do default for some reason the bank will still be able to recoup the value of your loan by repossessing and selling the car. Certainly most people do not get into car loans with the goal of eventually being repossessed, but it's the bank's job to prepare for the worst and have all bases covered. A large down payment allows them to do just that.

Consider a secured loan.
If a large down payment isn't an option, see if your lender will permit you negotiate a secured loan. A secured loan is one in which the value of the loan is secured against another asset of equal or greater value. Often this is the buyer's house, but any asset with a value equal or greater than the value of the car loan will usually be accepted. In the event that the buyer defaults on the loan, the bank can seize control of the secured asset and sell it off to recoup the value of the car loan.

Talk to your current bank.
In some cases bad credit is as a result of circumstances out of your control, such as identity theft or the actions of your spouse. In this case, you might be able to negotiate more favorable terms with your current bank. If you have a history of good behavior with your current financial institution, they might be more willing to grant you a loan than other lenders.

Bad credit need not be a permanent condition, although while it exists it can make things more complicated, and require you to be more creative. Over time though, if you make timely payments to your bad credit car loan, you can turn things around.


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The Ins and Outs of Interest Rates

Posted on Sep 13, 2011 by Thalia Green
Sep 13

Interest rates can have a profound impact on the amount you'll ultimately pay on your car loan. A few percentage points can mean a change in thousands of dollars over the course of the car loan. If you are new to the car buying process, here is some information to help you understand what interest rates are, and why they can go up or down.

What is an interest rate?
The best way to define interest is to consider it a fee which is paid for the privilege to borrow money. For example, let's say that you need a car loan in the amount of $10,000. The lender approves your loan, and charges a rate of 7% interest. This 7% is the fee that must be paid for the privilege to borrow money. In this way, banks make money on the loans that they offer.

Why interest rates can go up?
There are many reasons why interest rates can increase. Choosing a shorter length of loan is one reason. If you opt to go with a 36-month loan rather than a 48 month loan, the lender might opt to charge a higher interest rate in order to make the loan more profitable for them. How you handle stewardship of the loan is another reason the rate can increase. If you miss payments, this too can cause the interest rate to increase, assuming that the car isn't repossessed. Having a bad credit score can also cause your interest rate to be higher than usual.

Why interest rates go down?
Just as being neglectful of your credit can cause the rate to rise, keeping your credit good can be a wonderful bargaining chip in getting your interest rate lowered. If you started out at a high interest rate, but make payments on time, you may be able to refinance the loan with a different lender and get a lower rate.

Zero interest?
Car loans with zero interest might seem like a no-brainer, but there are a couple things to keep in mind. First, zero interest loans are almost always only offered at the dealer, and then on new cars only. This is because the car manufacturer will use zero interest as a marketing strategy to help keep their new car inventory low. Secondly, if you opt for a zero interest loan, there will be less room for haggling on the price with the dealer. You can expect to purchase the car at or close to MSRP if you accept a zero interest loan. Finally, zero interest might only be temporary, for maybe the first year or two. After that you might be expected to pay interest on the loan.

Hopefully this information has helped you understand a little better what interest is, and why it is so important to both buyers and lenders.

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Interest Rates

Choose Wisely: Why a Used Car is a Good Choice

Posted on Sep 13, 2011 by Thalia Green
Sep 13

In the movie "Indiana Jones and the Last Crusade", an old knight says to Indiana Jones, "You must choose, but choose wisely." If you've ever visited a car lot, the choices between new cars and used cars can be dizzying. On one hand the price of used cars is certainly enticing, but on the other there is the risk factor...what has this car been through in the past? What if you need expensive repairs? Here are some reasons why getting a used car is nearly always a good choice.

1) Less of a chance of being upside down.
If you are getting a used car loan with bad credit, odds are good that you'll be required to make a substantial down payment. However even if you have good credit you should still make a substantial down payment, to avoid being upside down on your car loan. As everyone knows, all cars depreciate over time, but those over three years old depreciate more slowly. By buying a used car there is less possibility that you'll be upside down on the loan, meaning that you won't owe more on the loan than the car is worth. The larger your down payment, the less likely it is that this will happen.

2) More affordable payments.
Even with a small down payment, a used car will most definitely be more affordable than its new counterpart, for the simple reason that used cars cost less. If less money is needed for the car loan, then the payments will also be smaller, and easier to fit into your budget. This will mean that you'll have more money left over each month to tackle your other debt. If you have bad credit and are working on rebuilding your FICO score, more money is most certainly a welcome thing.

3) Eliminating the risk element.
OK, you see the point in getting a used car, but what about the possibility that it might be a lemon? If you end up having costly repairs, they might wipe out the financial advantage of buying new. Fortunately there are ways to help safeguard yourself. First, read reviews of the car you are considering. Although it might look great on the lot, certain cars are notorious for requiring major maintenance as they get older. If you have a friend who is a mechanic, get their opinion on which used cars are the most reliable. This same mechanic can also look over the specific car you are considering. Other sites can help you find out the history of the car, as well.

Even with the added risk of getting a used car, it is still a wise choice to buy used rather than new. Remember that cars are great for transportation, but they are lousy investment. Spend as little as possible for your bad credit car loan and use the rest to attack your debt or save in real investments.

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Beyond the border: Financing a car from out of state

Posted on Sep 03, 2011 by Thalia Green
Sep 03

With the current difficult economy, many people are thinking outside of the box when it comes to large purchases, such as automobiles. Because certain markets are overly saturated in their inventory, it can sometimes make sense to travel to a different state to purchase the car that you want. The internet allows car buyers to get an even broader picture of what's available. However, if you chose this option for your next car, there are a few things to consider for choosing out-of-state financing for an auto loan.


1) Factor in the price of the trip to get the car.
Under no circumstances should you EVER purchase a car sight-unseen! All buyers should test drive their cars at least once before the purchase. With this in mind, the cost of travel to get the car will certainly have to be factored into the price. If you will spend a hundred or two to travel but save a few thousand over your local options, this is a no-brainer. If it's a used car, you should also arrange to have a neutral third-party mechanic take a look at the car.


2) Be prepared for a hard sell from the dealer to finance your vehicle with them.
If you need an auto loan to purchase your vehicle, the out-of-state dealer will certainly try to coerce you into financing your car with them. Before you travel to the dealer, make sure you do your homework on what local banks are able to offer you. The dealer will insist that they have the "best deal", but by doing some research you'll know if this really is the case.


3) Dealers have the option to set up road-blocks to out-of-state financing...but there are ways around them.
In some cases, dealers get an incentive for signing up people to use their in-house financing for auto loans, and therefore may make buyers jump through hoops so if they want to use their own lender. One such dealer required a same-day wire transfer from the buyer's credit union. The credit union was not able to do this, so the buyer did the next best thing...they accepted the dealer's offer to set up financing in-house, but had their credit union pay off the loan immediately. If you have a lender in mind, you might want to discuss this option with them, so that you don't end up spending an extra hour at the dealer haggling over financing.


Don't be scared off just because the car you want is out-of-state! With a little creativity, you could land yourself a great deal. 


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Car Loans for College Students

Posted on Aug 30, 2011 by Thalia Green
Aug 30

Student Car LoansCollege student car loans are special types of loans that are targeted towards the financial needs of college students who need reliable transportation. Many banks and credit unions will offer a special category of car loans that have lower interest rates or a discount off of the regular interest rate offered to non-student car loan customers. With college student car loans, a college student can find flexible options for repayment of student car loans. Special perks that are offered only with college student car loans can include the option to extend the repayment terms, a waiver of loan administration fees, lower interest rates, and additional discount rates.


Typically, student car loans are only available for car loans above a specific dollar amount, and this can vary from lending institution to lending institution. Some car dealerships may have pre-existing relationships with banks or credit unions to provide student car loans. Additionally, students typically have to meet a certain minimum number of college class hours in order to be considered a student to qualify for student car loans.


If the car dealership does not offer student car loans, the best way to locate college student car loans is to contact local banks and inquire about college student car loans. It can also be helpful to check with the financial office of the college or university to discover any local resources that can be of assistance to students who are trying to afford to purchase a car. Beyond the traditional banks and credit unions, there are also a number of companies that specialize in providing student car loans to students regardless of credit history. It is critical to read the fine print when applying for these types of student car loans to make sure the terms are clear.

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Best Time to Buy a Car is Now

Posted on Aug 29, 2011 by Thalia Green
Aug 29

Best Time ti buyIt's no secret that the economy's fits and starts over the past several years have been hard on automakers. Many consumers simply can't make big purchases, and many of those that can are choosing instead to pad their savings in the event of prolonged financial struggle.


However, this scenario, coupled with historically low interest rates from the Federal Reserve, is making it a tremendous time to seek a great deal on a new car or auto loan. With the fall auto financing forecast looking weak again, dealers have little choice but to stimulate sales through attractive incentives, which is a win for consumers in the end.

General Motors, for example, is currently piloting zero financing on new vehicles in many areas through its partner, Wells Fargo. The best thing any car shopper can do right now is be patient, be willing to wait and use the power of the Internet to find the best available information and the best available deal.

Automakers recovered rather nicely from some very dismal days in 2008 and 2009, when hardly anything was moving off their lots. That recovery gives the industry quite a lot of hope for the future. However, it was fear that drove customers away from auto lots at that time, and with the recent U.S. debt crisis and ensuing stock market turmoil, conditions are similar for a relapse into that climate of fear of large purchases.

That's what dealers DON'T want, and it's precisely why this is a great time to buy for consumers. Interest rates remain very low, and the Fed has said they will remain low for the foreseeable future. Buyers should use this knowledge to their advantage and go out and find a great deal.


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